A two-sector model of endogenous growth with leisure externalities

Costas Azariadis, Been-Lon Chen, Chia-Hui Lu and Yin-Chi Wang

No 2012-045, Working Papers from Federal Reserve Bank of St. Louis

Abstract: This paper considers the impact of leisure preference and leisure externalities on growth and labor supply in a Lucas [12] type model, as in Gmez [7], with a separable non-homothetic utility and the assumption that physical and human capital are both necessary inputs in both the goods and the education sectors. In spite of the non-concavities due to the leisure externality, the balanced growth path is always unique, which guarantees global stability for comparative-static exercises. We find that small differences in preferences toward leisure or in leisure externalities can generate substantial differences in hours worked and growth, which may play a significant role in explaining differences in growth paths between the US and Europe, in addition to the mechanisms uncovered in Prescott [16] relying on differing marginal tax rates on labor income. Our model indicates, however, that a higher preference for leisure or leisure externality implies less growth but also less education attainment, which seems counterfactual.

Keywords: Labor supply; Economic growth (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-dge and nep-fdg
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Citations: View citations in EconPapers (3)

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Journal Article: A two-sector model of endogenous growth with leisure externalities (2013)
Working Paper: A Two-sector Model of Endogenous Growth with Leisure Externalities (2012)
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DOI: 10.20955/wp.2012.045

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